Monetary prizes are all around us. Whether it’s prize money for winning horse races or stock car races, or prize money for awards, they are ubiquitous. A prize is the simplest economic incentive: set up the rules, decide on a winner, and distribute the benefits.

While the traditional domain for prizes is sports competitions and awards, public competitions have recently become more common in another sphere: the business marketplace. In 2006, Netflix began the “Netflix Prize,” an open competition to improve the algorithm for movie recommendations on their service. On September 21 last year, they awarded the $1,000,000 prize to a team that improved their recommendation service by 10%.

The Netflix Prize, however, is dwarfed by the Ansari X Prize, a space competition launced by the X Prize Foundation that offered $10,000,000 for the first non-governmental organization to launch a reusable manned spacecraft into space twice within two weeks. That award was given out in 2004; a later competition by the same foundation in partnership with Google, the “Google Lunar X Prize,” is ongoing. It will award $20,000,000 to the first team to land a rover on the moon that successfully roves more than 500 meters and transmits back high definition images and video (as an aside — how cool!).

These public competitions are examples of prizes in another sphere altogether: simply making the world a better place. The most recent prize idea that’s been discussed is a partnership between the X Prize Foundation and public health NGOs to create a prize to benefit public health.

Over at stone soup, David Yin recently proposed a “no-fault antibiotic injury program.” The program, modeled after the Vaccine Court created by the National Childhood Vaccine Injury Act of 1986, would shield antibiotic manufacturers from many tort claims and create a fund for paying the injured financed by a surcharge on vaccine purchases. The intended effect of such a proposal would be to cut costs for antibiotic manufacturers and thus encourage lifesaving research into antibiotics.

After reading this proposal, I was somewhat skeptical. While the benefits of the program for victims and the antibiotic manufacturers seemed intuitive and accurate, I wasn’t sure that a similar set-up to that of vaccine manufacturers would transmit a sufficient incentive to begin incredibly important (but expensive) research on antibiotics.

David’s description of why antibiotic research is important was particularly insightful. As he writes,

A few famous examples of MDR bacteria include multiple-drug resistant tuberculosis (MDR TB), and Methicillin-resistant Staphylococcus aureus (MRSA). Drug-resistant TB requires treatment with more expensive and dangerous second-line TB drugs, and if the TB develops resistance to those second-line drugs as well, there are few good options for the third line. MDR TB is a serious public health problem in the developing world where the WHO is seeking to eradicate TB. Resistant staph infections are a pressing concern in the First World. In the United States, a Department of Health and Human Services study estimated 390,000 hospitalizations from MRSA cases in 2005, and researchers estimated 17,000-19,000 deaths were attributed to MRSA. It’s important to remember that despite antibiotics, infections remain the second-leading cause of death in the world, and this is a problem not limited to the Third World, but right in our backyards, in our local hospitals and community health clinics.

What I was unsure of was whether David’s plan would be enough to get prescription drug companies working on the problem. As David writes, “Antibiotics are less profitable than drugs like Lipitor and Viagra that are used to treat chronic conditions and that are chronically consumed.” While David’s plan would shield prescription drug companies from litigation while their drugs were on the market, it was unclear that it could by doing so also make antibiotics as profitable as drugs like Lipitor and Viagra.

(By the way, with all these mentions of Viagra in my first post, you’d think that WordPress is starting to suspect I’m a robot.)

This brings me back to the increasing ubiquity of prizes.

While shielding antibiotics from litigation would make research less costly, a prize for the creation of antibiotics would make them more viable. It could spur research into areas where there is no current market (because they were made for resistant strains expected to surface in the future) or no sustainable market (because they are needed in the Third World, where there isn’t, well, much of a market and even worse, patents aren’t respected) without outside intervention. Prizes could provide drug companies with a gigantic incentive to research drugs that would be in the public interest. They could also justify more risky research methods that would otherwise go unexplored.

In addition (or perhaps instead) to David’s proposal, the government (or maybe non-governmental organizations with money, like the Gates Foundation) should offer prizes for antibiotic drugs that are sorely needed but are currently unprofitable. One cool aspect of the proposal is that prizes, unlike all other government programs, are costless until they achieve their goal. President Obama would likely have some interest in the proposal, being a prize money award winner himself.